BoE's King faces likely scrutiny over Barclays

July 16, 2012|Reuters

By Sven Egenter

LONDON, July 17 (Reuters) - Bank of England governor MervynKing is expected to be quizzed by lawmakers over his role in theresignation of Barclays chief executive Bob Diamond inan interest rate scandal that is rocking London's reputation asa banking centre.

The Libor affair is not officially on the agenda ofTuesday's hearing of parliament's Treasury Select Committee,which is scheduled to question King, his deputy Paul Tucker, topregulator Adair Turner and other officials about the BoE'sFinancial Stability Report and schemes to get credit flowing.

But after marathon sessions with former senior Barclaysexecutives and other regulators, British lawmakers will not missthe opportunity to press King on when he first suspected Libormight be rigged and why he intervened to ease Diamond out.

On Monday, Turner told the committee that he had alreadyconveyed to Barclays' chairman Marcus Agius that Diamond shouldleave and was surprised that then Agius decided to step down.

While the Libor saga is likely to overshadow the scheduledtopics, the hearing takes on extra significance from the factthat Tucker and Turner are both seen as strong contenders tosucceed King at the helm of Britain's central bank next year.

The lawmakers will also take views from Financial PolicyCommittee member Donald Kohn and BoE director Paul Fisher onrecent steps to ease liquidity constraints on banks in order toget more credit flowing through the recession-hit economy.

"DECEITFUL"

The scandal started with Barclays' admission that itstraders manipulated the bank's contribution to the LondonInterbank Offered Rate, or Libor, the rate at which banks lendto each other and which serves as benchmark for many other ratesand contracts.

Only days after the affair broke, King launched an angryattack on British banking culture, saying something had gonevery wrong with an industry which he derided for resorting to"deceitful" methods to make money.

Diamond stepped down four days later, and Barclays' chairmanAgius confirmed in his committee appearance that Kingintervened, saying the governor made it "very plain", thatDiamond no longer enjoyed the support of his regulators.

But then the central bank itself got dragged in when a 2008memo from Diamond appeared to suggest that BoE deputy governorTucker had condoned the rate-rigging.

The Treasury Committee found no evidence when it grilledTucker, but the committee chair Andrew Tyrie left little doubtthat he was not impressed by the central bank's handling of thedoubts raised about Libor's quality at the time.

On Monday, Jerry del Missier, who quit as Barclays' chiefoperating officer, told the committee he ordered staff tomanipulate rates in line with instructions from his then bossDiamond, following the conversation Diamond had with Tucker.

So King -- who has had many testy exchanges with Tyrie inthe past -- is likely to face more questions about whether thecentral bank was fully on the ball in 2008 when concerns aboutthis key rate were raised by banks and U.S. regulators.

Revelations that then New York Fed chief Tim Geithner hadrecommended to King to overhaul Libor have raised questions overwhether supervision of the benchmark rate had been too lax.

Libor is compiled from estimates by big banks of how muchthey believe they have to pay to borrow from each other. It isused for $550 trillion of interest rate derivatives contractsand influences rates on mortgages, student loans and creditcards.